Shares of Terex Corporation TEX dropped as much as 1.3% and closed at $27.90 on May 1, as the company reported weak first-quarter results on April 29. Lower margins in the Aerial Work Platforms (AWP) segment and an unusually higher tax rate and unfavorable currency exchange rates led to a loss per share of 2 cents in the first quarter of 2015 compared with earnings of 28 cents per share in the year-ago quarter. Reported results compared unfavorably with the Zacks Consensus Estimate of earnings of 18 cents per share.
Operational Update
Revenues in the quarter declined 9.6% year over year to $1.49 billion from $1.65 billion due to unfavorable impact of foreign exchange. Revenues also missed the Zacks Consensus Estimate of $1.46 billion.
Cost of goods sold decreased 7.7% to $1.22 billion from $1.32 billion in the year-earlier quarter. Gross profit slumped 17% year over year to $276.6 million. Gross margin also contracted 160 basis points to 18.5%.
Selling, general and administrative expenses decreased 25% year over year to $232.4 million. The company reported operating income of $44 million, down from $75 million recorded in the year-ago quarter.
Segment Performance
Terex’s overall results were weighed down by poor performance of the AWP segment due to labor issues at the West Coast ports, severe weather conditions in some regions in the U.S. and uncertainty surrounding oil and gas. Adverse currency exchange rates, an unfavorable product mix of fewer booms and more telehandlers, and higher factory production rates in the prior year first quarter, also negatively impacted the year-over-year margin comparison of the segment.
The segment’s revenues plunged 13% year over year to $507 million. Operating income decreased 47% to $43 million from $82 million in the prior-year quarter.
The Construction segment’s revenues were $153.9 million, down 21% year over year. The decline was primarily due to the divestiture of ASV, which was included in the prior-year period. The segment reported an operating loss of $4.5 million, narrower than the prior-year quarter loss of $5 million.
Revenues for the Crane segment went down to $386.9 million from $393.6 million in the year-ago quarter. The segment reported operating income of $3.6 million, reversing the prior-year loss of $0.2 million.
In the Material Handling & Port Solutions (MHPS) segment, revenues went down 12.6% year over year to $321.9 million. The segment posted an operating loss of $4.3 million in the quarter compared to a loss of $6.3 million in the year-ago quarter.
The Material Processing segment’s revenues were $145.7 million, declining 3% year over year. The segment reported operating income of $10.7 million, down 1.8% from $10.9 million in the year-ago quarter.
Financial Position
Terex had cash and cash equivalents of $351 million at the end of first-quarter 2015 compared with $478 million at the end of 2014. The company generated cash flow from operations of $110.7 million in the reported quarter, compared to cash usage of $25 million in the prior-year quarter.
Terex’s total debt increased to $1.9 billion as of Mar 31, 2015 from $1.8 billion as of Dec 31, 2014. The effective tax rate was approximately 114.9% in the first quarter compared with 26.7% in the prior-year quarter.
Terex repurchased shares worth approximately $48 million during the first quarter, under a new $200 million share repurchase authorization.
Backlog
Backlog of orders to be filled during the next 12 months was around $2.1 billion as of Mar 31, 2015, a sequential increase of 7%. However, it declined 9.4% year over year.
2015 Guidance
Terex reiterated its adjusted earnings per share outlook for 2015 in the range of $2.00 to $2.30. The company also confirms net sales guidance for the full year in the range of $6.2–$6.6 billion and full year free cash flow guidance of $200 million to $250 million. Terex expects the full year tax rate to be between 30% and 32%.
Terex completed the acquisition in Utility business during the first quarter for $24 million. Further, the company continues to invest in its TFS business which will provide long-term strategic advantage. Terex will be launching an asset-backed credit facility to fund a significant portion of current TFS portfolio in the U.S. as well as new originations going forward. The company expects to have this facility in place and partially drawn by the end of second quarter.
While the AWP business did not perform well during the first quarter, the company remains optimistic about the segment’s performance in the second quarter, both in terms of sales and profit. Terex’s other businesses remain on track to hit their 2015 targets. The crane market remains stable at relatively low levels with continued strength in the North American Utilities business and expects to deliver improved results on expansion initiatives.
Terex is introducing and demonstrating a number of new products, especially on the Material Handling side of the Material Handling & Port Solutions business, such as V-girder crane design and a new hoist design. The company expects these products to gain traction in the market in 2015.
Terex anticipates that its Materials Processing business will continue to perform steadily in terms of demand, driven by improved backlog. However, low commodity prices remain a headwind for this business, especially in markets such as Australia and Russia. Further, currency translations will continue to negatively impact Terex’s results.
Terex currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the industrial products sector include Astec Industries, Inc. ASTE, AO Smith Corp. AOS and ACCO Brands Corporation ACCO. All these stocks carry a Zacks Rank #2 (Buy).
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